National Healthcare Q3 2026 Earnings Call Transcript

National Healthcare (NASDAQ:NHP) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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View the webcast at https://events.q4inc.com/attendee/851315324

Summary

National Healthcare reported a significant advancement towards becoming a pure-play Senior Housing Operating REIT, with the sale and agreements to sell all outpatient medical facilities, generating approximately $1.1 billion in gross proceeds.

The company achieved a 13.6% year-over-year increase in same-store cash NOI, with a margin expansion of 150 basis points to 24.3%, driven by strategic concessions that helped boost occupancy.

National Healthcare acquired 22 SHOP communities totaling 1,381 units for $300 million in Q3, with a pipeline of further acquisitions valued at $388 million, expected to close by early 2027.

The company reported normalized FFO of $13.6 million, or $0.19 per share, with plans to issue inaugural FFO per share guidance with Q4 results in early 2027.

Leverage is expected to decrease significantly due to secured debt reduction and preferred equity repayment, aligning with investment-grade peers.

Management sees continued growth potential in occupancy and rate increases, with a strategic focus on high-quality operators and markets with need-based private pay communities.

Full Transcript

OPERATOR

Third quarter 2026 earnings conference call. After today’s prepared remarks, we will host a question-and-answer session. If you’d like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Mike Ozuna, Director of Investor Relations. Mike, please go ahead.

Mike Ozuna (Director of Investor Relations)

Welcome to the third quarter 2026 webcast for National Healthcare. All participants will be in listen-only mode. Please note this event is being recorded. Also note that certain statements and assumptions in this webcast presentation which are not historical facts will be forward-looking and are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are subject to certain assumptions and risk factors which could cause the company’s actual results to differ materially from the forward-looking statements. The company refers you to its SEC filings, including its most recent Form 10-K, for detailed discussion of the risk factors that could cause these differences and impacts in its business.

During today’s call, the company will also discuss certain non-GAAP financial measures. These measures should not be considered in isolation or as a substitution for financial results prepared in accordance with GAAP. The company will provide a reconciliation of these measures to the most directly comparable GAAP measure as part of its third quarter 2026 earnings supplemental on its website at www.nhpread.com. A question-and-answer session will follow the prepared remarks. Also, please note that a replay of the webcast will be available on the company’s website later today. I would now like to turn the call over to the company’s executive management team. Please go ahead, Michael.

Ray Michael Anderson (Chief Executive Officer)

Thank you, Mike. Good morning, and welcome to National Healthcare’s third quarter 2026 earnings call. I’m Michael Anderson, Chief Executive Officer of NHP, and I’m joined today by Drew Babin, our Chief Financial Officer, who will speak to our financial results and outlook in greater detail. Following my remarks on our first two earnings calls as a public company, we outlined three strategic priorities. First, grow the SHOP portfolio both organically and through disciplined acquisitions with best-in-class operators.

Second, concentrate our capital in senior housing, and third, build a balance sheet consistent with an investment-grade unsecured issuer. The third quarter meaningfully advanced each of those objectives, beginning with the portfolio. When we announced our first outpatient medical sale in May, we expected SHOP to represent approximately 60% of our cash NOI. Six months later, we have sold, placed under definitive agreement, or signed a letter of intent for every outpatient medical facility we own. In September, we closed the sale of the first 30 properties in our previously announced portfolio for approximately $198 million.

The remaining 56 properties in that portfolio are under agreement for approximately $331 million, with the buyer assuming approximately $219 million of secured debt. Also in September, we announced the definitive agreement to sell an additional 40 properties for approximately $531 million, and we signed a non-binding letter of intent to sell the final four properties. We expect both to close in the fourth quarter, subject to customary closing. Together, the 126 properties sold or under definitive agreement represent approximately $1.1 billion of gross proceeds at a trailing twelve-month nominal cap rate of 7.5% and an economic cap rate of 6.8%.

Upon closing of these transactions, NHP will become a pure-play Senior Housing Operating REIT, one of only two in the public markets. All of our net operating income will come from senior housing operating properties, in which approximately 97% of revenue is derived from private payers, serving an aging population at a time of severely constrained new supply. Turning to operations, on our second quarter call we explained that we and our operators had chosen to use short-term concessions at certain lower-occupancy communities. We believed that this approach could weigh on third quarter same-store NOI growth and that it was the right long-term decision to accelerate occupancy at those communities. Our third quarter results showed that our strategies worked. Same-store cash NOI grew 13.6% year over year, and same-store cash NOI margin expanded 150 basis points to 24.3%.

These results included the cost of concessions as well as the impact of a one-time insurance reimbursement in last year’s third quarter, which Drew will further detail. We view a short-term concession that secures a longer-term stay as beneficial to overall revenue and margin, and we are now positioned to enter 2027 with greater pricing elasticity and a more efficient flow-through of incremental revenue to NOI across a broader portion of our portfolio.

Our four operating partners—Senior Lifestyle, Discovery Senior Living, AgeWell Senior Living, and Priority Life Care—now collectively manage our 60 SHOP communities. Each continues to demonstrate the quality of resident care and operational discipline that underpin these results, and we’re grateful for their partnership as we continue to scale alongside them. We also expect to add a fifth operating partner, Sincere Senior Living, through an expected near-term acquisition.

Turning to external growth, during the third quarter we acquired 22 SHOP communities totaling 1,381 units for approximately $300 million, and subsequent to quarter end we acquired one additional community with 79 units for approximately $26 million. Our 2026 year-to-date acquisitions now total 25 properties and 1,671 units for approximately $424 million at a forecasted blended year-one yield of approximately 7.9% and a year-three yield of approximately 9.4%.

Our acquisition pipeline continues to grow. We currently have purchase and sale agreements for approximately $240 million of SHOP acquisitions, at estimated weighted average year-one and year-three underwritten cap rates of approximately 7.4% and 8.7%, respectively. That total includes the five communities we discussed last quarter, for which we were the winning bidder in a bankruptcy proceeding, and at least half of that consideration is expected to be funded with NHP OP units or REIT shares.

We have an additional $148 million under non-binding letters of intent. Together, that is approximately $388 million and 1,385 units—primarily assisted living and memory care—expected to close in the fourth quarter or in early 2027. Pipeline deals are subject to due diligence, closing conditions, and, for the letters of intent, to definitive agreements. We believe the overall quality of this pipeline is higher than that of our same-store portfolio, and occupancy across these communities is on average higher as well.

This volume reflects our disciplined, selective approach. We have evaluated and underwritten nearly $12 billion of potential opportunities and submitted approximately $3 billion of non-binding letters of intent. We continue to focus on need-based private pay communities where our operating partners and asset management team can drive measurable improvement. Finally, an update on governance. Last quarter I noted that we had begun another board process to identify a new independent director. We expect that process to conclude shortly with a meaningful enhancement to our board, and we look forward to sharing further details at the appropriate time. I’ll now hand the call over to Drew Babin, our Chief Financial Officer.

Andrew T. Babin (Chief Financial Officer)

Thank you, Michael. As you’ve heard, it’s been a pivotal quarter for National Healthcare. Our entire team has been working on multiple fronts to deliver on the priorities we laid out earlier this year. That work is reflected in both our operating results and a meaningfully stronger balance sheet. In the third quarter we reported normalized FFO of approximately $13.6 million, or $0.19 per share, a sequential increase versus last quarter despite the full-quarter dilutive impact of our IPO shares and the closing of the first tranche of our OMF exit.

This was a result of an increase in cash NOI and lower fixed charges. Notably, our normalized results exclude $4.3 million of straight-line rent write-offs related to OMF properties sold during the quarter, among other one-time items such as acquisition expenses, losses on the extinguishment of debt, and non-cash items related to derivatives. As we complete our OMF exit, redeploy proceeds into our SHOP pipeline, and continue strengthening our balance sheet, we may see some timing-related earnings volatility in the near term. We expect our portfolio and balance sheet to be substantially stabilized by the time we provide our inaugural FFO per share guidance, which we plan to issue with our fourth quarter results in early 2027.

In the SHOP segment, same-store cash net operating income increased by 13.6% year over year. It would have increased by 15.1% if not for a one-time insurance recovery which reduced operating expenses by approximately $150,000 in last year’s third quarter, driven by the focus on occupancy we described last quarter as well as the upcoming divestiture of a lower-occupancy property now removed from the same-store reporting. Same-store average occupancy increased by 190 basis points sequentially, 220 basis points year over year, to 86.7%.

For the quarter, same-store RevPOR grew by 30 bps sequentially and 4% year over year to $6,454, representing the combined impact of strategic concessions at our lower-occupancy properties as well as stronger pricing power with regard to street rates. At our higher-occupancy properties, same-store cash NOI margins increased by 150 basis points year over year, reflecting this pricing improvement and the operating leverage that comes from adding occupancy without a proportional increase in staffing.

On a two-year basis, same-store RevPAR increased by 10.9%, same-store cash NOI margin increased by 450 basis points, and same-store cash NOI increased by approximately 47%. As Michael mentioned, we expect pricing power and margin expansion to broaden as more of our portfolio moves to higher occupancy levels. On the OMF side, our same-store portfolio is now significantly smaller and includes only properties whose sales require additional closing steps related to their secured loans. This pool produced a flattish same-store NOI growth year over year and a 3.4% sequential increase from the second quarter. The flattish year-over-year performance was largely attributable to a one-time revenue catch-up in the third quarter of 2025 related to the internalization of our property management platform.

As far as the balance sheet, our net debt and preferred equity to EBITDA ratio was slightly over six times in the quarter. Due to expected additional reductions in secured debt related to our OMF exit, as well as the already consummated repayment of both our Series A and Series B preferred equity, we expect our leverage to decrease meaningfully. As we’ve discussed previously, we’ll continue to execute our growth strategy in a manner that results in stabilized levels of leverage in line with investment-grade peers.

For those newer to our story, you’ll recall that in August we recast our unsecured credit facilities, more than doubling total commitments from $550 million to $1.2 billion. The recast includes a $750 million revolver, a $300 million term loan, and a new $150 million delayed-draw term loan with a fully extended maturity of August 30, 2031, assuming all extension options are exercised, as well as improved pricing and terms overall. In connection with the recast, we repaid the $332 million Fannie Mae secured loan, a significant step toward building a balance sheet consistent with an investment-grade unsecured issuer.

Due to year-to-date levels of performance and our expectations for the fourth quarter of 2026, we’ve increased our 2026 full-year SHOP same-store cash NOI growth guidance to 16.5% to 18.5%. Further, we have discontinued our OMF same-store NOI growth guidance in advance of our expected exit from the segment. That said, we expect the fourth-quarter same-store cash NOI of our remaining same-store OMF portfolio to be generally consistent with our third-quarter total before the impact of further dispositions.

Our new acquisition guidance of $425 to $645 million includes all deals closed year to date at the low end and, additionally, transactions both under definitive agreement and expected to close in the fourth quarter at the high end. Dispositions of $1.1 billion include the disposition of all OMF properties except for four slated to close in early 2027, as well as the sale of two non-core SHOP communities for approximately $50 million. Both total G&A and equity-based compensation guidance remain unchanged from last quarter.

We segmented our recurring capital expenditure guidance to reflect our current same-store SHOP portfolio and, separately, our total 2026 recurring capex spending at OMF properties, including amounts previously spent on assets we no longer own. As I mentioned, we expect to be in a position to provide FFO per share guidance in 2027 once we are through the short-term impact of our portfolio and balance sheet transformation. With that, I’ll hand it back to Michael.

Ray Michael Anderson (Chief Executive Officer)

Thanks, Drew. The third quarter was a transformational quarter for National Healthcare. We turned the plan we outlined to investors in April into a clear path to a pure-play SHOP portfolio. We’ve agreed to fully exit the OMF segment at attractive pricing, and we’ve responsibly used a significant portion of the proceeds to retire the vast majority of our secured debt and all of our preferred stock. We told you last quarter what we intended to do with SHOP occupancy and the results are visible: same-store occupancy of 86.7%. We are realizing pricing power at our higher-occupancy communities, and we have accelerated narrowing of the occupancy gap relative to the broader NIC averages. Our transactions team is expected to exceed $800 million in total deal activity since our IPO by early next year, and Lindsey Gordon and our senior housing team continue to work with our operators to drive operating results.

Importantly, we remain disciplined in our approach, with the right team and infrastructure in place to support our growth. We look forward to updating our shareholders on continued progress in the quarters ahead. With that, I’ll turn the call back to the operator for question and answer session.

OPERATOR

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Jamie Feldman with Wells Fargo. Your line is open. Please go ahead.

Jesus (Analyst)

Hey, good morning, this is Jesus on for Jamie. Thanks for taking the question. Just as occupancy responded well to the concession strategy you guys highlighted here, but RevPOR growth slowed as you guys talked about in your opening remarks. As those incentives roll off, how should we think about RevPAR growth kind of heading into 2027, or has the near-term growth mix kind of shifted more towards occupancy?

Andrew T. Babin (Chief Financial Officer)

Yeah, hey Jesus, it’s Drew here. I would say that from a guidance perspective or prior guidance, we were prepared to probably give up more on the RevPOR side than we essentially had to at the end of the day to get that occupancy. We’ve had concessions beginning to burn off, and they’ll continue to burn off into the fourth quarter, and there will also be an impact of new residents that are coming in kind of beginning to pay 2027 rates already with an escalator.

So you put all that together, I think the fact that third-quarter RevPOR was pretty even with the second quarter, considering what we were doing with occupancy, is consistent with what we wanted to do. And in the fourth quarter, I think you’ll continue to see that RevPOR strength. And on the occupancy side, you know, the fourth quarter is never the strongest quarter of the year, just seasonally. But, you know, so far so good as far as there not really being bad weather or flu seasons or anything like that that could affect our ops. So we’re optimistic that the top-line story can remain very much intact to even improving through the fourth quarter into next year.

Jesus (Analyst)

That’s great. And just on the OMF exit here, I guess, what are the remaining execution items for the pending sales here, and how much acquisition capacity? Just talk about the acquisition capacity that becomes available once those proceeds and debt reductions are reflected.

Ray Michael Anderson (Chief Executive Officer)

Sure. Hey, it’s Michael. In terms of disposition process, you know, really left with two tranches of the portfolio left to close. We expect those will close this quarter. One is just subject to standard closing conditions, a couple deliverables on IT and the software front, but nothing that we see as a hurdle to getting the larger $531 million piece of it closed. And then on the other side of the transaction, everything seems in line, just working through the servicer process with that loan assumption.

But again, we’ve seen no hiccups or hurdles to getting that closed in this quarter. So still feel optimistic that that’ll get done on the timeline we’ve outlined. And I’ll let Drew take the proceeds piece of it.

Andrew T. Babin (Chief Financial Officer)

Yeah, kind of looking at this deleveraging and essentially re-leveraging exercise, with our deck we put out recently talked about how if you take all these OMF sales and just acquisitions we’ve closed, we really end up—obviously we’ve taken out the preferred and so the two different leverage ratios become the same thing—but we end up with essentially no net debt. But obviously we’ll be putting money to work kind of from there. But obviously we’ve prepared to, you know, achieve the high end of our acquisitions guidance for this year, and, you know, beyond that, you know, there’s capacity for, you know, at least, call it, another 150 or so of pipeline properties that we’re looking at for, you know, probably early next year closings. But, you know, that puts us in an area where our leverage ratio is very consistent with our investment-grade peers, which is where we want to be.

Jesus (Analyst)

Appreciate the time. Thanks guys.

OPERATOR

Thank you. Your next question comes from the line of Ronald Camden with Morgan Stanley. Your line is open. Please go ahead.

Ronald Camden (Analyst)

Hey, great. Just wanted to stick with the occupancy and commentary. Just trying to get a sense of where do you think that those numbers sort of stabilize on a go-forward basis? And curious, when you’re buying acquisitions, what are you underwriting for the occupancy gains—annual occupancy gains—and RevPOR gains when you’re underwriting the acquisitions? Thanks.

Ray Michael Anderson (Chief Executive Officer)

Hey Ron, it’s Michael. Good morning. Yeah, I mean, I think sitting in kind of the mid 86% occupancy in the same-store portfolio, we still see a long runway on the occupancy growth front for us. You know, nice to see some momentum in that. We continue to see some momentum into the fourth quarter RevPAR. As Drew mentioned, you know, we’ve already rolled out 27 street rates for new leases executed in the fourth quarter. So we’re starting to see some uptick from that.

I think you’ll see across the portfolio somewhere blended around a 5% to 6% rate increase for renewals and, you know, consistent with prior years. I think at the higher end of the occupancy spectrum, we certainly feel like there’s some more pricing elasticity and we’ve seen that over the last quarter as we offset some of the concessions with new leasing in that subset of the portfolio. And then as we’re underwriting new acquisition opportunities, you know, a lot of what we have in the pipeline is sitting in that kind of high-80s occupancy. Similar thesis of some occupancy gains to grow. But certainly as we cross 90% occupancy in certain assets, we feel as pricing power moves and the momentum moves more towards rate increases at street rates and certainly in-place rate increases.

So that’s kind of how we’re viewing the portfolio and viewing the acquisition pipeline as well.

Ronald Camden (Analyst)

Great, that’s helpful. And, you know, my second one was my follow-up. I just saw you added an operator with another one on the way. Just curious, as you think about scaling this platform, what the right number of operators is and how you’re sort of managing the relationships with those operators in terms of sharing data and best practices and so forth. Thanks.

Ray Michael Anderson (Chief Executive Officer)

Yeah, absolutely. I think you’ve seen across our portfolio, we’re big believers in relationships with quality operators. We’d rather have an A operator in a B market than vice versa. And that, I think, resonates throughout the acquisition pipeline as well as through the existing portfolio. So we’ve added PLC as a new operator. They currently operate three assets. That number should grow closer to nine or 10 by the end of the year. And I think as we view adding operators to the mix, we like to see somewhere north of 10 as kind of the long-term goal with any given operator relationship so that we can implement best practices and have more impactful relationships.

So we’ll be disciplined as we add those operators. But, you know, it’s certainly something that we’re evaluating on a daily basis with Lindsey and team and excited to have PLC in the mix and to add some Siri to the pipeline or to the platform shortly.

Ronald Camden (Analyst)

Thank you.

OPERATOR

Your next question comes from the line of Rob Stevenson with Huntington. Your line is open. Please go ahead.

Rob Stevenson (Analyst)

Good morning, guys. Can you talk about the $388 million of assets in the pipeline and whether or not that’s inclusive of deferred CapEx and any other improvements that you want to make there? And then also, where RevPAR is on an existing basis versus your existing portfolio, which is, I think, around $6,600 a month?

Andrew T. Babin (Chief Financial Officer)

Yeah. So in a general sense, just to address your last question first — and we had some materials on this we put out in a recent deck — but the RevPAR on what we’re buying is, call it, I think $150 to $200 higher than our same-store portfolio. So there is that on the acquisition side. Could you maybe repeat what that question was?

Rob Stevenson (Analyst)

Is the $388 million inclusive of any deferred CapEx and other property improvements that you’re going to want to make within year one, or is there an additional sum there that those communities are going to require?

Ray Michael Anderson (Chief Executive Officer)

So that number is just the purchase price the way that we guided. But I think it’s fair to assume, you know, some level of CapEx over and above that — maybe $10 million or so in the aggregate. So not, you know, a materially higher number. I would say that that’s going to be geared more towards revenue-enhancing projects. You know, we tend to want to buy properties that are a common-area refresh or floor replacement — things like that — away from achieving higher rates, not properties that need kind of the basics addressed right out of the gate.

So I think you’ll see the CapEx spending on the acquisitions to be very consistent with what we’ve done so far and, again, more focused on revenue-enhancing items.

Rob Stevenson (Analyst)

Okay, and then last one for me, the $531 million sale — did you guys say that that was early ’27, or is that going to close before year-end? Does that close all at once, or does that go in multiple tranches like the previous sale has?

Andrew T. Babin (Chief Financial Officer)

Yeah, we expect that the $531 million portfolio will close in 2026, and that will all close at once. There’s no bifurcation. The other portfolio was bifurcated because of the loan assumption piece, but there’s no debt associated with that portfolio. So that’ll be a single closing.

Rob Stevenson (Analyst)

Okay, thanks, guys. Appreciate the time.

Ray Michael Anderson (Chief Executive Officer)

Thanks, Rob.

OPERATOR

Your next question comes from the line of Michael Carroll with RBC Capital Markets. Your line is open. Please go ahead.

Michael Carroll (Analyst)

Yep, thanks. I guess, Michael, I wanted to circle back on the 3Q concession packages that the company offered. I mean, are you now happy with occupancy and where it is in those lower-occupied communities? I mean, is there a need to do this again maybe next key selling season, or do you think this was like a one-time thing just to kind of get occupancy up in those specific assets?

Ray Michael Anderson (Chief Executive Officer)

Yeah, I would say it’s a broad statement. I think this was a one-time event. We have, you know, added the concessions to the toolbox for what we consider our focus set of communities — so nine communities that we monitor on a biweekly basis with the on-the-ground team there — and so those are available on a case-by-case basis for them to utilize. But broadly speaking, we’re not going to be using the same widespread concession packages to drive occupancy like we did in the third quarter.

And, you know, more focused on driving rate and margin at this point now that we’ve seen a majority of the portfolio surpass that 85% occupancy level.

Andrew T. Babin (Chief Financial Officer)

And I’ll add to that too. If you take these properties that are really kind of on this focus list away, our occupancy would be in the low 90s. And so it really is a matter — and we already have the pricing power really coming through, the margins coming through at those properties. So when it comes to these kind of watch-list properties, you know, they’re either going to make progress or, you know, I think everything is always for sale, and if there are assets that we don’t think can get there, I think we’re open-minded about potentially divesting those or pruning those.

So again, we’ll continue to work through it. But all in all, we saw a good sequential improvement at these properties during the quarter. And to Michael’s point, concessions are not being used broadly right now. You know, could they if there was a weather event or something like that? Sure. But right now we’ve scaled that back.

Michael Carroll (Analyst)

Okay, great. And then just on the recent acquisitions and the pending deals in your pipeline, I mean, how are those communities positioned within the market? And then I guess specifically I’m just looking at the year-one versus year-three yield expectations. It looks like the 3Q deals, there’s a bigger pickup between the year-one and year-three yield. Is there something specific with those deals where you see more upside, or is that going to just vary depending on the individual assets that you’re targeting?

Ray Michael Anderson (Chief Executive Officer)

Yeah, I would say it’s really a case-by-case basis. Some of the assets we purchased are sitting in that kind of low- to mid-90s occupancy, as we’ve talked about in the past. As we think about entering new markets and looking to expand the footprint, we often look for an asset that has a strong reputation and has been well regarded in the market to help build the brand and build the platform off of. But in markets where we’ve got a foothold already, we tend to focus on opportunities where we have some occupancy and some rate upside.

So I think it’s really case by case. But, you know, still think that there is plenty of runway. You know, the non-same-store pool sits in that kind of high-80s occupancy — similar, you know, slightly elevated above the same-store portfolio — but still some runway to grow.

Andrew T. Babin (Chief Financial Officer)

And I’ll add to that — the one asset that we acquired at the end of the second quarter was kind of a uniquely stabilized, highly occupied asset for us, where we were looking to enter the Cincinnati market in the right way. So the yield growth on that one is… I think most of what we’re going to be doing is going to look more like the third quarter and less like that one we did in the second quarter, as far as just growth in the yield from year one to year three.

Michael Carroll (Analyst)

Yep. Okay, great. Thank you.

OPERATOR

Your next question comes from the line of Wes Galladay with Baird. Your line is open. Please go ahead.

Wes Galladay (Analyst)

Hey, good morning, everyone. For the assets you’re looking to buy out of the bankruptcy, are you still looking to pay part of that with shares?

Andrew T. Babin (Chief Financial Officer)

Yes, about $65 to $70 million of that purchase price will be funded with shares.

Wes Galladay (Analyst)

Okay. Would you have the option to pay with cash if you didn’t like where the shares were trading? Would that be an option for you?

Andrew T. Babin (Chief Financial Officer)

I believe so. We can confirm that for you, but I believe it’s structured in a way that we could. But I think it’s a nice way to fund an acquisition. Certainly expect the shares to be in a place where we feel comfortable.

Wes Galladay (Analyst)

Okay. And then the leverage is going to come down quite a bit with the asset sales. On the OMF side, what is the long-term, I guess stated goal for leverage going forward?

Andrew T. Babin (Chief Financial Officer)

Yeah, what we said is we want to be in line with our investment-grade peers, and I think that should imply a ratio below — definitely below — 5. I think over time, as our internal growth continues to move things forward and presumably when our cost of equity is in a place where we can fund external growth with our stock, I think we want to keep it coming down long term. But I think for the near term I would say under five is the red zone.

Wes Galladay (Analyst)

Thank you for the time.

Ray Michael Anderson (Chief Executive Officer)

Thanks, Wes.

OPERATOR

Your next question comes from the line of Juan Sanabrio with BMO Capital Markets. Your line is open. Please go ahead.

Juan Sanabrio (Analyst at BMO Capital Markets)

Hi, thanks for coming. Just on the investments, I’m just curious on how we should think about initial year-one yields of what’s pending or what’s in the pipeline as you look to redeploy incoming MOB proceeds or OMF sale proceeds.

Andrew T. Babin (Chief Financial Officer)

Yeah. Hey Juan, what we’ve got in the pipeline under PSA currently sits around a 7.5% year one with, you know, call it 130 basis points of expansion through year three. I think we’ve seen a lot of levered buyers kind of take a seat on the sidelines with interest rates moving in the last six weeks or so, and so slightly less competition in the market. I don’t think cap rates have necessarily moved the opposite direction, but the compression, it feels like, has slowed on that front.

And so I think somewhere in that mid-7s and slightly higher is probably a fair assumption around acquisitions for the foreseeable future.

Juan Sanabrio (Analyst at BMO Capital Markets)

And then I think you sold maybe three SHOP assets, correct me if I’m wrong, year to date. Could you just give a little bit more color on the history of those assets? Were they part of the portfolio and assets that maybe were always thought of as disposition potential, or is there a commonality with age or unit size or acuity focus — like IL only or memory care only? If you could just kind of talk a little bit about the assets you’ve chosen to prune on the SHOP side and any other potential disposition opportunities.

Andrew T. Babin (Chief Financial Officer)

Yeah, so there were two shop divestitures. One is already closed. That one was in California and, you know, I think around $42 million. That was our only asset in California, and some inefficiencies there on our side having that asset isolated. It was very attractive land and a property that was older and probably needed some capex. And there was a buyer that was very California-focused that was excited to put that capex in and really thought they could drive higher returns.

As we disclosed, we sold that at a 1.7 cap rate. So that was a little more opportunistic, I would say, again, just owing to the land value. The second one is more of a property that is sort of in the bucket of properties where we’re trying to drive occupancy but we’re a little less optimistic on it. And so, you know, that one’s really just kind of a prune movement. We’re really not losing much cash flow at all. We’re also not getting a ton of proceeds. But it’s just one that probably just doesn’t fit in our portfolio. And I think, you know, we’ll continue to evaluate assets like that, that if we can’t operate it to a certain level, then, you know, we don’t feel like we need to own it long term.

OPERATOR

Thank you. Your next question comes from the line of Julian Blume with Goldman Sachs. Your line is open. Please go ahead.

Julian Blume (Analyst)

Yeah, good morning. Thank you for taking my question. Do you think expense growth in this sort of 2% range, maybe actually lower than that, ex-insurance items in the third quarter, is sustainable? And if so, as concessions burn off and RevPAR accelerates in the quarters ahead, and if you’re able to hold on to occupancy gains, should we actually expect to see cash NOI margin expansion and NOI growth sort of accelerate in the quarters ahead?

Andrew T. Babin (Chief Financial Officer)

Yeah. Put it this way, I think on the top line—and I’ll circle back to the margin point—we obviously feel good about where our occupancy is, and we still think that there’s plenty of runway there on the rate side, as Michael said. I mean, we’re going out with, you know, renewals or charging renewals for next year that are as good and maybe even a little better than we got for ’26. Residents who are moving in now are beginning to pay those, and then, you know, street rates at our higher-occupancy communities—we’ve had a lot of success there, especially where there’s been ROI capex—so feeling very good about the top line.

If you kind of model out, there’s a major difference in what you get as far as NOI growth with different levels of expense growth. And I think, logically, given the level of occupancy we’re at, we should continue to see expense growth moderate. We’re not adding significant additional staff with, you know, incremental increases in occupancy, and certainly, you know, rate drops very directly to the bottom line. So that’s all to say, we expect to continue to see normalization, and we’re working hard with Lindsey’s team and with our operators to identify additional areas where we can save on expenses to really take advantage of this point we are in the occupancy cycle, where flow-through really begins to pick up. We’ve begun to see that, and we expect to see more of it, frankly.

Julian Blume (Analyst)

Okay, great. And then I think a big part of the thesis has been that you would face sort of less competition for the types of assets and markets you’re looking in. I guess, can you give us a sense on your recent pipelines, how much competition you feel you faced and how much of your deal flow is being driven by your relationships with operators? And do you think you’re sort of seen as a go-to owner for operators sort of brokering a sale in certain markets or for certain types of assets?

Ray Michael Anderson (Chief Executive Officer)

Yeah. Hey, Julian. Yeah, to that point I think you’re spot on that a lot of the pipeline—certainly a vast majority of the pipeline—has been sourced through operator relationships, existing and new operators. You know, I think we’ve seen, with levered buyers kind of taking a seat on the sidelines with interest rates where they’ve moved, there has not been a ton of public competition in some of these assets that we’ve been buying and investing in. And so I think we are, you know, we’re running up against local owner-operators, developers, and the like in some of these assets. And we certainly have, I think, built a reputation of a group that can close efficiently. We can do diligence much faster than kind of smaller shops. And so we’ve been that go-to; they know we’re well capitalized. They know that we can move with expediency. And so yeah, I think that we have started to build that reputation and expect that that’ll lead to more momentum throughout ’27.

Julian Blume (Analyst)

Okay, great. Thank you. Thanks.

OPERATOR

Your next question comes from the line of Austin Werschmidt with KeyBanc Capital Markets. Your line is open. Please go ahead.

Austin Werschmidt (Analyst)

Thanks. Good morning. I want to circle back on a few things that have been discussed throughout the call. You kind of mentioned in your prepared remarks the current investment pipeline contains some higher-quality assets than the current same-store pool, and you did reference less competition. But is that really the only factor that’s enabled you to source some of these higher-quality deals? And are you refining the types of assets, markets, and operators that you’re looking to partner with in light of some of what you’ve experienced with the watch list properties?

Ray Michael Anderson (Chief Executive Officer)

Yeah, I think, you know, we certainly are focused on—as I alluded to earlier—A operators in B markets is the thesis for us. We know that we can do well with assets that have experience under management and really bringing that institutional touch to secondary markets, particularly throughout the Midwest where we’ve seen a lot of success in the same-store portfolio. So we’ll continue to invest in those markets, partnering with really high-quality operators that can deliver the results and the best practices that our team expects to see throughout the operational lifecycle.

And so, yeah, that remains the focus for us. You know, as we evaluate opportunities, we’re very focused on assets that I think, as Drew alluded to, have operational upside from also a capex—kind of ROI-driven capex—perspective. We’re not investing in assets that have, you know, dated reputation, maybe not the best reputation in a given market, because we know that that takes quite some time to turn that from a public perception point of view. And so we like assets that can use some common area refresh, we can experience some rate upside through redoing of units and whatnot, and partnering with operators to drive efficiencies from staffing, labor, food costs, and whatnot.

Austin Werschmidt (Analyst)

Got it. And then are the watch list properties part of recent portfolio acquisitions, or were these legacy assets that you’ve owned now for a few years?

Ray Michael Anderson (Chief Executive Officer)

Yeah, these are legacy assets. This portfolio—the watch list, or we call them focus communities—that list shifts every quarter to two quarters. You know, we’re constantly evaluating. It could be an occupancy, it could be a rate, it could be an expense management item that we’re adding the assets to for whatever reason. And so there’s not necessarily one unified reason as to why we add an asset to the focus communities. But what it means is those assets and those executive directors and sales directors just get some extra attention from the asset management platform. They’re on the phone with them on a biweekly basis just going through, you know, the CRM and leads and understanding what’s driving occupancy and sales in that market and in that asset. Could be talking about driving rate, could be looking at expenses and expense management.

So that list is one that evolves, and I think we spent a good amount of time on the IPO roadshow talking about—we see tremendous results when an asset is added to the watch list or the focus community list because of that extra attention that’s paid. And so it’s an evolving list. It changes multiple times a year, and right now the focus is on some of the lower-occupied communities. But as I mentioned, that does change as the year progresses.

Austin Werschmidt (Analyst)

That’s helpful. And last one for me, just to kind of hone in given the tougher comps that you’ve kind of seen with, you know, driving some of the decel in the same-store pool, I mean, are we in and around an area that you would sort of range-bound put within where you think is a reasonable stabilized growth level for the assets in the next few years? That’s all for me, thanks.

Andrew T. Babin (Chief Financial Officer)

Yeah, I think—just kind of going back to my comments about, you know, still having some occupancy upside and, you know, really having some stickiness in kind of the mid- to high-single-digit range as far as rate growth—I think we feel very, very good about that runway. And given our older move-in age, I think we feel good about our ability to kind of perpetuate that runway pretty far into the cycle. And we have plenty of assets in our portfolio that are substantially full with margins over 30%.

And as more of our portfolio gets to that level, there’s a powerful earnings impact that goes along with that. Thanks.

OPERATOR

We have reached the end of the Q and A session. I will now turn the call back to Michael Anderson for closing remarks.

Ray Michael Anderson (Chief Executive Officer)

Thank you, and thank you all for joining us this morning. We’re excited about what the rest of the fourth quarter holds for us and moving into 2027, and look forward to sharing some additional updates with you soon on our board process as that concludes. Thanks, everyone.

OPERATOR

This concludes today’s call. Thank you for attending. You may now disconnect.

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